Friday Night Thoughts

Another Friday, another bank failure. The Georgian Bank, which 99% of most Americans had never heard of until today, will cost the FDIC approximately another one billion dollars. But there is a difference between the bank failures that have been announced during the past year and the bank failures (Lehman) and close calls (Wachovia, Washington Mutual, Merrill Lynch) that convulsed the United States financial system one year ago. The difference is that the FDIC and the Federal Reserve, having learned from the experience of 2008, are letting the air out of the balloon slowly now. Instead of a tidal wave of failures the United States government is simply allowing a slowly rising tide of financial insolvency to flood the U S economy. It’s a proven tactic for politicians because it has the effect of postponing the inevitable banquet of consequences where pols (as someone said of the healthcare debate) might find themselves not at the table, but on the menu.

While it is uncanny how deft today’s politicians have become at deflecting responsibility for the financial mess we are in, the cause of our current dilemma rests squarely on the shoulders of taxpayers and consumers that spent more than they earned, borrowed more than they could afford and lived lifestyles that bore no resemblance to their own actual economic condition. Such is the stuff of all economic bubbles. However, these same people that overextended themselves are now deep into the process of righting their personal financial affairs. The household savings rate is now at historically high levels. Household debt reduction is also at similarly high levels. Individuals and households got the message that life has changed. However, the Congress shows no such discipline and the legacy of this policy will be stagnant growth, high unemployment and no wealth creation. It is this trifecta, which last manifested itself in the 1970’s, that will send many Congressmen into retirement. But will anyone remember this when it all comes apart?

Lately much has been said about voter anger. The legacy media continues to either ignore the legitimate Tea Party protests or portray other exhibitions of voter anger as the result of fringe movements. This is nothing more than an exercise in avoidance. The real voter anger will come in a few years when the full effect of a deflated dollar, diminished personal family wealth, and today’s children find out that they can’t get a job….and that may be a best case scenario. It assumes, for example, that the United States will still enjoy the national security it has today and that it has suffered no military defeat or terrorist attacks.